Beyond the tax return lie a variety of issues and situations that companies can find themselves in. One of these, the State Sales Tax Audit, is a rigorous process imposed by the State Government on companies of all shapes and sizes. To increase revenue, many states have cracked down on companies and increased the number of sales and use tax audits. However, there are many ways to minimize sales and use tax problems, including amnesty programs, voluntary disclosure agreements, and managed compliance agreements.
Many companies fail to understand the time and effort required to handle a State Sales Tax Audit. Auditors will ask for a variety of paperwork, have a multitude of important questions regarding the state of the company, and ultimately, cause disruption and risk unless the company is adequately prepared.
Among our ranks of dedicated and professional Certified Public Accountants are ex-Texas Sales Tax Auditors with invaluable experience in the area. We can help you through the process with guidance and experience beyond that of a typical CPA firm.
Why have I been audited? – Sales Tax Audit Triggers
There are a number of reasons why the State Comptrollers office may choose to audit your business. Perhaps due to the size and volume and complexity of your returns, the State decided it was in their best interest to audit you yearly, or perhaps a specific event, such as in bankruptcy or the closing of a particular location triggered an audit.
Anywhere in the tax code where there is room for discretion, creates a possible chance for an audit to occur. For example, significant exempt sales or firms that experience an increase in exempt sales are more likely to be audited. This is because of the discretion surrounding what exactly constitutes an exempt sale. Similarly, a drop in exempt sales can also lead to an audit. We’re sure you’re staring to see the pattern!
Nexus can also trigger an audit – Nexus become an issue when taxpayers make an online sale in a different state than where they typically do business. If a sale is made in another state, taxpayers are generally required to to register for sales and use tax and begin filing returns for that state. Failure to do so can result in an audit. – And with the internet at everyone’s fingertips, companies are more easy to discover by auditors – who only need to make a phone call to check on State registration.
Tax Payers who fail to file their returns on time also raise red flags with auditors. Timely and accurate filing is the easiest way to secure and protect yourself from an audit. This means it’s almost always a good idea to hire a trustworthy CPA to handle everything for you. A small mistake on a return can lead to a major auditing headache down the road, so protect yourself now with proactive planning and organization!
Sole Proprietors are often audited more frequently than small business corporations (including C corporations, S corporations and limited Liability companies). There is no guarantee, but US Tax departments have decided that sole proprietors are more likely to file self-prepared returns that have errors – leading them to be under more scrutiny. Talk to your CPA today about the best way to structure your company today!
If you’ve been audited and need representation backed by experience and confidence, then look no further than the talented CPAs and tax audit professionals here at GLO CPAs. We’ve been in business for over 35 years, helping clients of all shapes and sizes deal with all issues, from audits, returns, financial planning and more.
Anatomy of an Audit
- The Entrance Conference
- The Sampling Methodology
- The Performance of the Audit
- The Post-Assessment Period
Audits happen in stages, and to get the best result you’re going to need to be prepared from the onset of the audit, all the way through to it’s completion. The entrance conference is a very important, first meeting with your auditor, where information is exchanged. It’s important to start off on the right foot, and therefore recommended that you get a qualified CPA to help you with this stage, as well as every step of the way as the audit advances. During the entrance conference, auditors will ask for a variety of paperwork, and may ask some challenging questions that you’ll want to make sure are answered correctly.